CMS’ Bundled Payments for Care Improvement Initiative (BPCI) defines episodes of care (initiated by hospital stays) and spending targets for traditional Medicare enrollees. Providers continue to be paid on a fee-for-service basis. If total spending exceeds the target, then the “contracting entity” pays Medicare the difference. If total spending is below the target, then Medicare pays the contracting entity the difference.

Consider BPCI Models 2 and 3 (listed in Table 3.1 of MedPAC (2013), pasted below), where a hospital stay initiates each model. For this exercise, consider a hospitalas the contracting entity directing care under Model 2 and a skilled nursing facility (SNF) as the contracted entity directing care under Model 3.

Note: the MedPAC (2013) report on the reading list (optional reading) provides a great overview of the BPCI program and may help you think about these questions, particularly pp 59-62.

Consider two conditions:

Condition 1: analysts believe patients admitted to the hospital for Condition 1 are often unnecessarily discharged to an institutional post-acute care provider (for example, a skilled nursing facility or inpatient rehabilitation facility) where a home health provider could provide care more efficiently and effectively.

Condition 2: analysts believe that institutional post-acute care (such as SNF care) is very often clinically necessary after a hospital discharge for Condition 2. However, there is a high incidence of unnecessary hospital readmissions from post-acute care providers for patients with Condition

In addition, analysts believe SNF stays are too long for patients with Condition 2.

A. Separately describe which BPCI model is the best match for Condition 1 and 2. In each case, justify your decision by describing which contracting entity is in a better position to improve the efficiency and effectiveness of care, and explicitly describe the change in payment incentives from traditional Medicare to bundled payment for the contracting entity. (6 points)

B. Explain an unintended consequence of bundled payment and describe a feature of BPCI that may offset this incentive. (2 points)

C. List and describe at least one advantage and one disadvantage to having a longer duration episode covered by the bundled payment. (4 points)

D. The goal of bundled payment is to produce a set of incentives to deliver care that maximizes both quality and efficiency. In the week 5 lecture, we considered alternative theories for the existence and behavior of nonprofit hospitals. Under which theory would you expect the largest change in treatment patterns when payment switches from fee-for-service to bundled payment? Provide support for your answer. (2 points)

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